LLC Managing Member vs. LLC Non‑Managing Member: Understanding the Difference

When forming a limited liability company (LLC), one of the most important structural decisions owners make is whether the company will be member‑managed or manager‑managed. Even in a member‑managed LLC, the operating agreement may designate one individual as the managing member, giving them authority beyond that of the other owners.

A 2014 New York case, Kalikow v. Shalik, offers a clear illustration of the legal distinctions between managing and non‑managing members and why they matter.

What Is a Managing Member?

A managing member is a member who has been given explicit authority in the operating agreement to run the day‑to‑day affairs of the LLC.

In Kalikow v. Shalik, the operating agreement granted one member “sole discretion” to manage the company’s business and affairs. This meant he had the exclusive power to make decisions, act on behalf of the company, and bind the LLC. ​

Key Responsibilities of a Managing Member

• Fiduciary Duties: Under New York LLC Law §409, managers must act in good faith and with the care of a prudent person in similar circumstances. ​

• Duty of Loyalty: Managing members must avoid self‑dealing and conflicts of interest.

• Duty of Disclosure: Courts have consistently held that managing members must disclose material facts to other members.

• Operational Authority: They can enter contracts, oversee finances, manage employees, and make strategic decisions for the LLC.

In short, a managing member functions much like an officer in a corporation or a general partner in a partnership.

What Is a Non‑Managing Member?

A non‑managing member has an ownership interest in the LLC but does not participate in management unless the operating agreement specifically grants such authority.

In the Kalikow case, the non‑managing member held 50% ownership but no managerial duties or powers because the operating agreement assigned all management authority to the other member.

Key Characteristics of a Non‑Managing Member

• No Automatic Fiduciary Duties: New York law does not impose fiduciary duties on non‑managing members, unless they actually participate in management.​

• Limited Decision‑Making Power: They generally cannot bind the LLC or take action on its behalf.

• Financial Rights Only: Their rights are primarily economic—profit distributions, access to books and records, and voting on major structural changes depending on the operating agreement.

The Kalikow court underscored that the legislature intentionally omitted any obligation of “good faith or loyalty” for members who are not managers.

Why the Distinction Matters

The difference between a managing and non‑managing member is more than a title—it defines who owes duties, who controls operations, and who bears responsibility for the company’s actions.

The Kalikow case demonstrates this clearly:

• The managing member was subject to fiduciary duties.

• The non‑managing member, having no management authority, could not be held liable for breach of fiduciary duty.

• Courts look first to the operating agreement to determine each member’s role and obligations.

Takeaway

If you are forming or joining an LLC, carefully review or draft the operating agreement. Clearly defining whether a member is managing or non‑managing determines:

• What duties they owe,

• What authority they have, and

• What liabilities they may face.

Cases like Kalikow v. Shalik make one thing clear: in LLCs, roles are everything, and the operating agreement is the ultimate guide.